Govt may ask Vodafone to seek Settlement Commission reprieve
Penalty waiver only if it agrees to be Hutchison's agent in India under Section 163 of I-T Act
Fearing any special dispensation to Vodafone by way of a penalty waiver could create an uproar in Parliament and enrage companies that have already paid tax in similar deals, the finance ministry may ask the British telecom major to settle the issue by approaching the Income Tax Settlement Commission.
The legal recourse may help the company secure a waiver on penalty of Rs 7,900 crore and also a part or full waiver on interest of about Rs 4,500 crore. In about 90 per cent of the cases, the commission waives the penalty, and, in some cases, the interest as well. Thus, Vodafone’s net tax liability may be between Rs 7,900 crore (the tax demand) and Rs 12,400 crore.
“Vodafone will be able to approach the Settlement Commission for a penalty waiver only if it agrees to be an agent of Hutchison in India under Section 163 of the Income Tax Act. Currently, the case to decide on making Vodafone a representative assessee is pending before the Bombay High Court. If it agrees, the tax assessment would be done under Section 143(3),” a finance ministry official told Business Standard.
Officials admitted since a compromise in this case was not possible under the current law, the government would not offer any relaxation on the tax. However, it might not be able to legally sustain the penalty on the company because retrospective amendments don’t apply to penal provisions.
Though the ministry has maintained the retrospective amendments were not substantive, only clarificatory in nature, if Vodafone moves court challenging the penalty, there is a possibility the ruling authority might decide in its favour.
“The penalty order was issued last year, but we could not collect the demand, since the court had issued a stay on it. Now, it is for the judicial authority to decide whether the penalty can be sustained or not. But before that, the company would first have to file return and pay tax,” said an official.
The ministry is also considering other options, including clarifying in the Income Tax Act that the penalty would not be levied retrospectively in cases under Section 9. Alternatively, the Central Board of Direct Taxes (CBDT) can come out with a circular under Section 119 waiving the penalty in such cases. However, it fears in both these cases, the government could be criticised for favouring a company and causing revenue loss to the exchequer. “Objections might be raised if it is done by the CBDT through an executive order. So, it would be better if the legislature clarifies it, in case the need to do so is felt,” said an official.
Analjit Singh, appointed non-executive chairman of Vodafone in February this year, met the finance ministry brass thrice last week, fuelling speculations the company was trying to reach a compromise.
A tax expert also agreed the government did not have the scope to opt for any settlement under the current law. He said the court could issue a waiver on the penalty. “An out-of-court settlement on the tax issue means the government will have to give some special dispensation to Vodafone. However, if it does that, some other company can raise the issue of discrimination. So, it’s not an easy way out,” he said.
Though there is a consensus in the ministry that Vodafone would have to pay the tax due, and there was no question of any compromise on this, a senior income tax department official said once the company agreed to pay tax, revenue authorities could look at ways which could help the company in making staggered payments of the amount due on account of statutory interests. “The assessing officer can allow the company to make payments in installments if the company wants to do so to avoid a huge payment at one go,” he said, categorically adding this could happen only after the company decided to comply with the tax provisions.
Meanwhile, Mukherjee on Thursday said the government may clarify its stand on the Vodafone tax controversy in Parliament during discussion on Finance Bill, 2012.